Ágnes Pogány Department of Economic and Social History, Corvinus University Budapest

Transcription

1 Ágnes Pogány Department of Economic and Social History, Corvinus University Budapest Co-operation through the Iron Curtain, Economic Relations between Austria and Hungary after the Second World War Austro-Hungarian economic relations go back to many centuries. Geographical proximity, long historical coexistence and differences in natural endowment could account for close economic ties. Austria had been the most important partner in Hungarian foreign trade at least since the 19 th century until the 1930s. About 75 per cent of Hungarian trade was conducted with the Western part of the Austro-Hungarian Monarchy before Even in the interwar years Austria absorbed a significant portion of Hungarian exports. Expanding nazi Germany could only draw back Austria to the second place in Hungarian foreign trade from 1934 on. Economic ties got however insignificant in the years following the Second World War. Centuries-old relations were reduced to a minimal level, to a simple barter. From the fifties to the eighties the share of Austria in Hungarian foreign trade hardly exceeded 3-5 per cent, Hungary s share in Austrian commerce got even smaller it stagnated around per cent (table 2). The paper describes the most important stages of improving political, commercial and financial relations after In the 1950s and 1960s foreign trade became subordinated to the needs of forced industrialization of the planned economy. Imports from the capitalist countries had to supply the missing resources, advanced technology and investment goods that were not to be obtained in the CMEA co-operation. From the 1970s increasing liquidity problems made Hungary more dependent on Austria as a credit and investment source. The reconstruction of the bilateral relations, Hungarian foreign policy s scope of action got broadened very slowly in the first years after World War II. Even in 1954 Hungary had diplomatic relations only with 32 states. The possibilities for autonomous foreign policy ceased to exist in Hungary after 1947, international relations were 1

2 subordinated to Soviet interests. 1 The Allied Control Commission approved of the establishment of diplomatic relations between Austria and Hungary as late as 28 th January 1948 following that foreign representations were established in both capitals. The first trade agreement was concluded on 5 th September 1948, according to which Austrian commodities were exchanged for Hungarian food. Nevertheless infant connections froze due to strengthening opposition between the great powers already in the same year. 2 During the first years of the cold war only economic relations could survive hostility between East and West, however on a very much reduced level. Agreement on the exchange of goods was prolonged in 1951 and 1954 again, but official visits, cultural change and tourism ceased to exist between the two neighbouring countries. 3 With the easing of the tensions between East and West bilateral connections got new impetus. The Austrian State Treaty of 15 th May 1955 and the declaration of eternal neutrality of 26 th October the same year gave Austrian foreign policy bigger autonomy. The Soviet Union also urged the policy of breaking with Cold War and of peaceful coexistence in 1955 as was demonstrated by the reconciliation with Yugoslavia and the summit talks in Geneva in July The new, more compliant Soviet attitude had a strong influence also on Hungarian foreign policy that initiated closer economic contacts with Austria. Hungary struggled with serious balance of payments deficit in these years due to the mistaken forced industrialization policy and hoped to get new credits and imports from the neighbouring country. First secretary of the Hungarian Workers Party, Mátyás Rákosi wanted to strengthen his own political positions as well by building closer contacts to Vienna. 5 In the summer of 1955 Hungary started a new opening towards the Austrian Republic in a unique way among the other Soviet satellites. 6 One can regard as one of the first signs of improving bilateral relations that Austrians firms appeared on the Budapest Agricultural Fair at the 1 Pritz, Pál, Magyarország helye a 20. századi Európában. (The place of Hungary in 20 th century Europe) In: Pritz, Pál, Sipos, Balázs, Zeidler, Miklós (eds.), Magyarország helye a 20. századi Európában. Tanulmányok. (The place of Hungary in 20 th century Europe, Essays), Magyar Történelmi Társulat, Budapest, pp , p Soós, Katalin, Dr. Bruno Kreisky osztrák szövetségi külügyminiszter budapesti látogatása és tárgyalásai (1964. október november 1.), (The Visit of Austrian Federal Foreign Minister dr. Bruno Kreisky to Budapest, 29 th October-1 st November 1964), In: Múltunk. Politikatörténeti folyóirat. XLIV pp , p Soós, Dr. Bruno Kreisky, pp Heinrich, Hans-Georg, Die Entwicklung der österreichisch-ungarischen Beziehungen. In: Mlynar, Zdenek (Projektleiter), Die Beziehungen zwischen Österreich und Ungarn: Sonderfall oder Modell? Österreichisches Institut für Internationale Politik, Wilhelm Braumüller, Universitäts-Verlagsbuchhandlung GmbH, Wien, pp , p Soós, Dr. Bruno Kreisky, pp Heinrich, p Heinrich, p Gecsényi, Lajos, A magyar osztrák kapcsolatok ( ) (Austro-Hungarian relations, ), In: Pritz, Pál, Sipos, Balázs, Zeidler, Miklós (eds.), Magyarország helye a 20. századi Európában. Tanulmányok. (The place of Hungary in 20 th century Europe, Essays), Magyar Történelmi Társulat, Budapest, pp p

3 first time since 1945 in On 29th November 1955 the new trade agreement was signed by Austria and Hungary. 8 The détente that began in 1955 was hampered by two problems, by the conflict about the property rights and by the mine barrage on the demarcation line between Hungary and Austria. Hungary promised to solve both of them. 9 Hungary was the first and only country in the Soviet bloc that started talks on the questions of property rights. The first round was held in Budapest in 1953, the second one took part in Vienna in During the negotiations several grave problems were to be solved; the nationalized Austrian fortunes in Hungary, the double estates extending over the Austro-Hungarian border, the Hungarian property assets taken into Austria on the turn of and the assets of Hungarian citizens blocked by Austrian authorities after the war. 11 On the basis of the Potsdam declaration all German property in Hungary was taken into Soviet ownership after According to that about 40 former Austrian companies became Soviet property including the Hungarian subsidiaries of the Creditanstalt-Bankverein, Julius Meinl, Wiener Allianz or Steyer-Daimler Puch. In 1953 the two countries started negotiations on outstanding financial claims but their positions were very different. During the 1956 talks Budapest demanded that those Hungarian assets that were forcibly removed by the Germans to Austrian territory after the German occupation of Hungary (March ) were to be restituted, or a compensation payment was asked instead of them. In 1949 it was estimated that one billion 1938 peng s worth of Hungarian assets were held in Austria. Austria argued that it was not responsible for the forced transfer of these assets and had no legal obligation for restitution or monetary compensation. Austria, on the other hand, demanded compensation for sovietized Austrian property in Hungary that Budapest rejected on two grounds. First, many of the Austrian properties that had been handed over to the Soviet authorities had been transferred to the Soviet holding company in Austria, 7 Gecsényi, Lajos, A magyar-osztrák kapcsolatok történetéhez (On the history of the Austro-Hungarian relations, ) In: Gecsényi, Lajos (eds.), Iratok Magyarország és Ausztria kapcsolatainak történetéhez. (Documents on the history of the Austro-Hungarian relations), Magyar Országos Levéltár, Budapest, pp p Heinrich p Gecsényi, Iratok, p számú dokumentum, El terjesztés a Külügyminisztérium Kollégiumához a magyar-osztrák kapcsolatokról, Budapest, augusztus 30. (Document 35, Report for the Board of the Hungarian Ministry of Foreign Affairs on the Austro-Hungarian Relations, Budapest, 30 th August, 1958) In: Gecsényi, Iratok, pp p Gecsényi, A magyar osztrák, p

4 USIA. Second, Hungary agreed to pay for them to the Soviet Union in the framework of a 1952 Soviet-Hungarian agreement on the repurchase of Soviet property in Hungary. 12 The other obstacle to bilateral connections was easier to remove. The Hungarian Prime Minister declared to raise the mine barrage on the border within three months time on 9 th May The blockade was liquidated indeed by the summer of The marked improvement of the Austro-Hungarian relations was seriously interrupted by the Hungarian revolution in October Austria supported the uprising by sending relief to Hungary and summoned the Soviet Union to cease fighting in Hungary after 4 th of November. Austria backed the sanctions of the United Nations taken to punish the new Hungarian government as well. Vienna gave shelter to the Hungarian refugees and assisted them on an unparalleled large scale. 14 The new Hungarian Prime Minister, János Kádár attacked the Austrian attitude several times accused the Western neighbour for giving assistance to the Hungarian counterrevolutionary forces and for being responsible for causing counter-revolution in Hungary. 15 Austro- Hungarian relations reached their nadir at a second time. Hungary closed its frontiers again in January The Soviet Union warned Austria as well, its foreign policy was disapproved and was regarded as violating the principle of neutrality. 16 Austria had a hostile attitude to the Kádárregime for years because of the brutal oppression of the uprising, the execution and imprisonment of the revolutionaries. Nevertheless, hostile Austro-Hungarian relations did not fit into the standpoint on peaceful coexistence formed by the Soviet Union. Moscow appeared as a peacemaker already in the spring of Deputy Prime Minister Mikoyan urged both sides to reconciliation in vain during his Vienna visit in April Bilateral connections were burdened with serious conflicts in these years. Although Hungary wanted to reconstruct the relations to Vienna with Soviet support it had no chance for success until the early 1960s. 17 The Austrian government and the new foreign 12 Borhi, László, A vasfüggöny mögött. Magyarország nagyhatalmi er térben (Behind the Iron Curtain, Hungary and the Great Powers), Ister, p. 21. Borhi, László, Soviet economic penetration and Western Trade in Hungary, , Manuscript Gecsényi, A magyar osztrák, p Soós, Dr. Bruno Kreisky, p Soós, Katalin: Ausztria és a magyar menekültügy (Austria and the Hungarian refugees ), Századok, pp Soós, Dr. Bruno Kreisky, p Gecsényi, A magyar osztrák,, Közös nyilatkozat a Magyar Népköztársaság és a Szovjetunió párt- és kormányküldöttségeinek tárgyalásairól április 9. (Joint statement on the talks between the representatives of the governments and of the parties of the People Republic of Hungary and of the Soviet Union, 9 th April 1958), In: MSZMP határozatai és dokumentumai. (Resolutions and documents of the Hungarian Socialist Workers Party, ), Kossuth Kiadó, Budapest, Második, vített kiadás. Heinrich, p. 26. Gecsényi, Iratok, pp ,

5 minister, Kreisky named the improvement of the political atmosphere in Budapest as a precondition to starting an opening towards Hungary. 18 The Kádár-regime could loosen its political isolation after 1956 only step by step. International contacts were established first with Third World countries, than with neutral countries, other capitalist countries were the last to build closer connections. Neutral Austria promised to be a suitable partner for Hungary not only from economic aspects but also politically. Geographical proximity, long traditions of economic co-operation and complementary economic structures were seen as positive factors. Austria as a neutral country was qualified as a non- imperialist state and was preferred to NATO countries. 19 Hungary had hoped for a while that Austria takes neutrality not only in a narrow military sense but in an economic and political one as well and furthermore it put pressure on Vienna in order to reach these aims. What is more, Budapest asked Soviet assistance to persuade Vienna. Austria however insisted upon to belonging to the Western hemisphere and at the end Kádár had to accept it. By the autumn of 1958 the Hungarian foreign policy realized the failure of its former efforts and took note of Austria s Western alignment. 20 For Austria it was the political and economic consolidation in Hungary that made the gradual improvement of bilateral relations possible. The amnesty granted to political prisoners, the successful reorganization of the agriculture and increasing living standard was favourably appreciated in Vienna. In the early sixties international politics got back to normal slowly and it opened some possibilities for autonomous foreign policy in both neighbouring countries. 21 In 1962 the ice was broken and both countries aimed for improving their connections. A trade and payment agreement for five years was signed in 1962 and the negotiations on the property rights started again. 22 On 10 th of July 1964 the two heads of the delegations put their initials to the treaty. Hungary obliged itself to pay 87.5 million ATS for the nationalized Austrian property. Austria took upon itself to pay 65 million ATS to the former Hungarian employees of the First Danube Steamship Company and as a compensation for two other Hungarian claims Gecsényi, A magyar-osztrák, pp Földes, György, Kádár János külpolitikai nézetei ( ). (The views of János Kádár on foreign policy, ), In: Pritz, Pál, Sipos, Balázs, Zeidler, Miklós (szerk.), Magyarország helye a 20. századi Európában. Tanulmányok. (The place of Hungary in 20 th century Europe, Essays), Magyar Történelmi Társulat, Budapest, Gecsényi, Iratok, p Földes, pp Soós, Dr. Bruno Kreisky, p Gecsényi, A magyar-osztrák, p Soós, Dr. Bruno Kreisky, p Gecsényi, Iratok, p

6 Bilateral relations improved spectacularly in the first half of the sixties. In June 1964 the first deputy of the president of the Hungarian council of ministers, Jen Fock visited Austria. He was taken to the giant state owned firms and discussed new forms of industrial cooperation between the two countries with foreign minister Kreisky and Vice Chancellor Pitterman 24 In October the same year the visit of foreign minister Bruno Kreisky to Budapest was a landmark in Austro-Hungarian relations indeed. 25 During his visit the agreement on the final settlement of mutual property right claims was signed. The visit symbolized the reconstruction of the political relations and attention could be turned toward deepening economic relations. Foreign minister János Péter expressed his Austrian colleague that Hungary wanted to increase its foreign trade with its Western neighbour and plans buying complete industrial plants and equipments. 26 Kreisky warned however Hungary in his speech delivered in the meeting hall of the Hungarian Academy of Sciences that Austria is not willing to give up his own agriculture. 27 Austro-Hungarian economic relations after World War II. 1. Foreign trade Regular foreign trade based on multilateral trade agreements ceased to exist in Hungary after World War II. The level of foreign trade was significantly reduced and the sole purpose of it was to secure the most important food, raw materials and prime necessities in order to satisfy the basic needs of the population. The structure of foreign trade was modified on a large scale, the share of the Soviet Union increased especially after Foreign trade transactions were transformed into a state monopoly gradually between 1947 and State owned foreign trade companies were established with the sole right to trade with special groups of commodities in The state monopoly of foreign trade was declared by the new Constitution of As a result industrial firms were not allowed to have direct contacts to Western companies. Export orders could be managed only with the help of specialized foreign trade companies. Hungarian enterprises became tightly segregated from foreign markets, from information on foreign demands and customers. They lost interest in profitable exports and imports as well because the new price system did not számú dokumentum, Fock Jen a Minisztertanács elnöke els helyettesének jelentése a Minisztertanácshoz és az MSZMP KB Politikai Bizottságához ausztriai útjának tapasztalatairól. Budapest, július 31. (Document 67. Report of the first deputy of the president of the Hungarian council of ministers, Jen Fock for the Council of Ministers and for the Political Committee of the Hungarian Socialist Workers Party on the experiences of his visit to Austria, Budapest, 31 st July 1964). In: Gecsényi, Iratok, pp Gecsényi, A magyar-osztrák, p Soós, Dr. Bruno Kreisky, p Gecsényi, Iratok, pp Soós, Dr. Bruno Kreisky, p Heinrich, p

7 transmit the changes and effects of the international price level. The big companies producing important export goods were granted the right to make foreign trade transactions independently as late as As a consequence of the cold war Austro-Hungarian trade dropped to its lowest level after Austro-Hungarian trade settlement was based on the bilateral clearing system. The switch over to settlements in convertible currencies took place in Each year a mixed committee established the list of goods Austria and Hungary were willing to exchange and also set the financial limit for the purchases for both sides in talks. 30 Embargo hampered the development of bilateral trade relations. Hungary no longer got from its western neighbour what it really wanted. Austria, as other western states prohibited the exports of strategic items to iron curtain states. Most importantly, Austria no longer wanted to import those agricultural produce it had previously bought from Hungary. Austria became self-sufficient in several food products and did not grant any duty concession on Hungarian items. After the conclusion of the State Treaty in 1955 trade expanded considerably. However the economic contacts were almost broken down already in November Austro-Hungarian trade was revived only following the reconstruction of the political relations in the early sixties. Foreign trade started to increase significantly in these years. The pace of its growth exceeded that of overall Hungarian foreign trade. Austria was Hungary s second most important partner among the capitalist countries. The volume of foreign trade quadrupled between 1965 and In the second half of the 1970s turnover stagnated as a result of the economic recession. In the years from 1980 to 1989 the volume of Austrian exports to Hungary increased threefold again. However, Hungarian exports rose somewhat slower. In and in 1986 Hungarian authorities had to restrict imports in order to eliminate growing deficits of the balance of payments. 31 In spite of the rapid development of bilateral trade there were grave structural imbalances in Austro-Hungarian economic relations. As a consequence of the slower growth of Hungarian exports to Austria balance of foreign trade accumulated an increasing and permanent deficit (table 28 Honvári, János, Magyarország gazdaságtörténete Trianontól a rendszerváltásig. (The economic history of Hungary from Trianon to the democratic transformation.) Aula, Budapest, Levcik, Friedrich, Austria s Trade with the East. In: Csikós-Nagy, Béla and Young, David G. (eds.) East-West Economic Relations in the Changing Gobal Environment. Macmillan Press, London, Houndsmill, Basingstoke, Hampshire and London, pp p Jan Stanskowsky, Wirtschaftsbeziehungen zwischen Österreich und Ungarn. In: Zdenek Mlynar (Projektleiter), Die Beziehungen zwischen Österreich und Ungarn: Sonderfall oder Modell? Österreichisches Institut für Internationale Politik, Wilhelm Braumüller, Universitäts-Verlagsbuchhandlung GmbH, Wien, pp , p. 74. Borhi, Soviet economic penetration. 31 Stanskowsky, Wirtschaftsbeziehungen, p

8 1). 32 The insufficient competitiveness of Hungarian goods and their poor quality set a limit to the Hungarian exports to developed markets. In the years following world economic recession of 1973 Hungarian industrial products got undervalued even more. The cheap mass products that were exported by Hungary were hardly marketable on the world market due to the oversupply of Third World and other CMEA producers. Hungarian exports to the capitalist countries consisted mainly of raw materials and semi-finished goods. The ratio of finished products was extremely low. Only one tenth of the agricultural exports consisted of canned food, chemical industry exported mostly semi-finished materials, pharmaceutical industry raw materials, engineering industry supplied cheap mass products mainly. 33 In the case of Austria the structure of Hungarian exports was even worse per cent of the Hungarian exports to developed capitalist countries consisted of raw materials and semi-finished goods. In the case of Austria this ratio was even higher, 75.5 per cent. Five sixth of the Hungarian exports was raw material and fuel intensive although Hungary hardly had the domestic resources for them. The structure of the Hungarian supply did not reflect the professional qualifications of the domestic workforce and the comparative wage advantages. The share of research-intensive products such as pharmaceuticals was extremely low. 34 To make matters worse the ratio of agricultural products decreased significantly in the Hungarian exports to Austria from the seventies on, while the share of fuels started to increase at the same time (table 3). 35 Fuel and diesel oil were the most important Hungarian export goods to Austria from Their proportion in the total Austrian trade was even higher than in the exports to other Western countries. In the first half of the 1980s due to the slowing down of Hungarian economic growth domestic energy consumption got somewhat smaller. The unutilised part of the fuel contingent delivered by the Soviet Union to Hungary was exported partly as semi processed products (benzol, bitumen, paraffin-wax, engine oils, etc.) to Austria. 36 Hungarian agricultural exports faced also great difficulties. As a result of Austria s growing selfsufficiency Hungarian deliveries of food lost their former significance. Austria covered 90 per cent of its own foodstuff demand from domestic resources already in the eighties and became itself an 32 Kovács, Gyula: Ausztria (Austria), In: Körkérdés a magyar külkereskedelem helyzetér l. I. rész. (Inquiry on the situation of the Hungarian foreign trade, I.) Külgazdaság, XXXI pp , p Föhring, Vilmos, Szervezeti és hatékonysági problémák az Ausztriába irányuló magyar exportban. Kiviteli struktúránk javításának lehet ségei. (Problems of the system and efficiency of Hungarian exports to Austria. The possibilities to improve the structure of our exports), PhD. Diss. MKKE, Bp p Föhring, pp Föhring, pp Kovács, Ausztria, p

9 agricultural exporter of meat, diary products, and what is more surprising even of cereals. There were only a few products Austria did not produce herself (e.g. vegetable oil, fresh fruits). However, this market also became increasingly closed for Hungary. Austria concluded a free trade agreement with the European Economic Community in 1972 according to which she opened her market to the EEC countries. Hungarian agricultural products that were burdened with import duties and other discriminatory measures had to compete with EEC products that were imported duty free. The share of Hungary on the Austrian food market remained constant but very low from the sixties until the eighties it amounted to 4-5 per cent. The structure of Hungarian agricultural exports was really unfavourable. The ratio of processed products of high value was extremely low. The portion of food designed for immediate consumption hardly exceeded per cent, the greater part of Hungarian deliveries needed further processing. 37 Vegetable oil used to be the most important item of Hungarian food exports to Austria. Although its market share was per cent in the eighties, Hungary could only deliver crude sunflower-seed oil in trucks because it was not burdened with import duties. Refining and bottling took place already in Austria. The situation was the same in the case of the juice of the delicious Hungarian apple or of the tomato-paste. They were exported in a crude form the final processing and packing were made by Austrian companies. Slaughtered poultry and eggs that belonged traditionally to the Hungarian export products lost their market shares also. Czechoslovak and GDR deliveries displaced Hungarian poultry eggs from Holland and Western Germany ousted Hungarian ones. Fresh fruits and vegetables arrived increasingly from the EEC countries. Wine exports lost its former importance as well. Austria herself turned to be a wine exporter, the appearance of the French and Italian wines made the situation even worse. The market share of Hungarian wines diminished from 14 to 7 per cent in the eighties Joint ventures and inter-firm co-operations Hungary struggled with a permanent balance of trade deficit with the West from the early fifties. From the seventies significant terms of trade losses deteriorated Hungary s financial positions further (table 4). It was the result of a mistaken industrialization policy that created an energy and raw material intensive industry needing growing imports but producing mostly cheap mass 37 Föhring, pp Seb k, Ausztria agrárkülkereskedelme és a magyar export lehet ségei (Austria s agricultural foreign trade and the possibilities of Hungarian exports) In: Külgazdasá, XXVIII pp

10 products that were hardly marketable on foreign markets. 39 This situation was hardly maintainable from 1973 on when fuels and raw materials got much more expensive. In order to solve the problem a new economic strategy was formulated. It was decided to establish a modernized economic structure and to start new huge scale investments to create more marketable products of high value with the help of Western capital and technology. The abundance of cheap credit on the international financial markets made the concept a reasonable alternative from 1974 on. This policy however did not fulfilled its aims, could nor raise the level of competitiveness and efficiency of the Hungarian enterprises but lead to the growing indebtedness of the country and to a grave financial and economic crisis (graph 1). 40 Hungary strived after broadening economic relations with Austria to get up to date industrial equipments and knowledge. Already in 1969 intergovernmental cooperation agreements covering economic, industrial, technical and scientific cooperation came into being with measures to promote bilateral contacts. In 1979 these agreements were prolonged. 41 Austria was among the pioneers willing to try out and to expand East-West industrial co-operation on the enterprise level. At the beginning of the 1970s about 10 per cent of all industrial East-West co-operation agreements were concluded by Austrian firms. Cooperation ties were especially intensive between Austria and Hungary. One-half to two-thirds of all Austrian co-operation agreements were concluded with Hungarian enterprises. On the other hand rather weak co-operation ties existed between Austria and the GDR and Czechoslovakia respectively, the industrially most advanced CMEA countries. In agreements with Hungary mainly medium-sized firms predominated on the Austrian side. Conversely, we find a preponderance of large enterprises of the Austrian nationalised industry or large enterprises belonging to Austrian banks (also state owned) as participants in cooperation agreements with the other CMEA countries. Tripartite industrial cooperation agreements extending East-West cooperation to the developing countries were on the 39 Facsády Júlia, A befelé fordulás (importhelyettesít stratégia) magyarországi múltjáról és gyökereir l. (On the roots and past of the policy of autarchy (import substitution) in Hungary.) Külgazdaság, pp Baárné Nyitrai Ilona, Garbainé, dr. Kovács Katalin, Láng György, dr. Nyers Rezs, Bíróné Szeg Márta, Küls eladósodás és adósságkezelés Magyarországon. MNB M helytanulmányok 2. (Foregn indebtedness and debt managing in Hungary, Papers of the National Bank of Hungary Nb. 2.) MNB Földes György, Az eladósodás politikatörténete (The political history of the indebtedness ) udapest, Maecenas Kiadó, 1995, pp Fordulat és reform (Turning point and Reform, 1987) In: Medvetánc, Supplement, pp Zdenek Mlynar, Die österreichisch-ungarischen Beziehungen als Sonderfall der Ost-West Beziehungen. In: Mlynar, pp pp

11 increase in the second half of the 1970s. In this field the impetus got lost under the impact of the recession and weakened East-West ties. 42 In order to get high level technology new management and marketing knowledge Hungary encouraged the promotion of joint ventures, firms founded with foreign and Hungarian capital together in Hungary or abroad. Foreign investments in Hungary were also welcome because they provided fresh capital withouth increasing the otherwise huge indebtedness of the country. Joint stock companies abroad were also useful because they could ward off the protectionist and discriminative measures of the capitalist markets and help market-access. In 1986 there were 200 companies owned totally or partially by Hungary with a seat in a foreign country. The number of joint ventures settled in Hungary was more than 80. According to the number of co-operation, Austria was Hungary s second most important partner approximately 120 co-operation agreements were concluded between Austrian and Hungarian firms. The majority of the agreements concerned engineering and electrical industry, chemistry, pharmaceutical industry, light industry, agriculture and food processing. In spite of this transport of goods originating from industrial co-operation was very low, it amounted to only 5-7 per cent of foreign trade between the two neighbouring countries. The biggest joint ventures would have been the building of the hydroelectric power station at B s-nagymaros financed with an Austrian credit of 7 billion ATS. The agreement between the Oviber, Donau Kraftwerke, MVMT and Österreichische Elektrizitätswirtschaft AG became effective in September 1986, however the completion of the project was prevented by the collapse of the socialist planned economy in Joint ventures in Austria The Hungarian joint ventures in Austria were mostly trading and forwarding companies of smaller size. A few of them were founded before 1945 like Tungsram that had six subsidiaries abroad already before World War II. In Austria 53 companies belonged to the CMEA countries the most of them were owned by Hungary. 44 According to Vajna 33 firms was owned wholly or partially by Hungary (table 6). Some of the companies had industrial character like Tungsram that produced 42 Levcik, pp Vajna, Gábor, Magyar-osztrák vegyes vállalatok m ködésének értékelése. (The analysis of the Austro-Hungarian joint ventures companies), PhD. Diss. MKKE, Bp p Stanskowsky, p

12 electric bulbs, or Metex that cut steel plates imported from Hungary and sold them in Austria and on third markets. 45 Interestingly enough Hungarian trading companies working in Vienna transmitted goods quite often between CMEA members in convertible currencies. Transactions that were not allowed inside the CMEA became possible in Vienna with the help of these small firms like Chemol Wien GmbH that was founded in 1976-ban with the participation of the Creditanstalt-Bankverein. 46 Almost all bigger Hungarian enterprises with an own export license had a company or agency in Vienna. Their original aim was to promote the exports of goods produced by the owner. Due to shortages and poor quality of products they started to do different transactions and were highly profitable. They made use of the important role of Vienna in East-West transit trade and of the favourable economic and political environment in Austria. Sometimes they served profit transfer and tax avoidance as well, charged irrationally low expenses to their Hungarian business partners in order to transfer profits in a hidden way. 47 Joint ventures in Hungary The decree of the Hungarian Ministry of Finance of 1972 permitted Hungarian enterprises to promote joint ventures together with foreign investors in Hungary. The procedure was however very complicated thus the decree did not had the desired effects, in the seventies only three companies were founded. The new decree issued in 1982 simplified the process and provided for more favourable tax rates. AS a consequence the number of joint ventures increased rapidly in the 80s. 48 Austria was an active partner in promoting joint ventures in Hungary as well (table 7). While the Hungarian government stimulated foreign investments to modernize industrial production only a small proportion of the joint ventures had an industrial character. VÁÉV Bramac was founded in 1984 in order to produce roof tiles with an up to date technology consuming less energy. Although roof tiles were in short supply in Hungary at that time the company faced serious problems in the first years. The products were much more expensive than the former ones produced by traditional 45 Vajna, pp Vajna, pp Vajna, Kövér, György: A Magyar Külkereskedelmi Bank története dokumentumokban és emlékezésekben. (The History of the Hungarian Foreign Trade Bank According to Documents and Reminiscences), MKB, Budapest, pp Vajna, p

13 methods and demand fell back because of economic depression that lead to a decrease of private house building. Other joint ventures were more successful. Hungarofeder founded in 1983 manufacturing ready-made products with feather (duvets, sleeping-bags, jackets and coats) was a profitable enterprise. Most of the products were exported. 49 The majority of the new companies served the tourist trade. Obligatory visa system was abolished between Austria and Hungary from January 1 st Austria considered Hungary as a cheap holiday land and granted 300 million USD (5 billion ATS) credit for various projects to develop foreign tourist trade in Hungary and to help Austrian building exports. With the help of these loans hotels, border crossing stations, swimming pools and tennis halls were built by Austrian building companies like Porr AG in Budapest and in the countryside visited by Austrian tourists as lake Balaton or Sopron (table 8). Joint ventures were also founded in this branch of the economy. Travel bureaus, spa hotels or even casinos promised much more profit than industrial investment because of increasing number of tourists. 50 Some financial institutions were also founded with foreign and Hungarian participation. Central European International Bank (CIB) established in 1979 was the first joint venture in Hungary and the only one offshore bank in the CMEA where foreign participation exceeded the domestic one (table 7). Its share capital was the highest among the other joint ventures in Hungary. As an offshore bank it was free from the Hungarian foreign exchange restrictions and could make transactions in convertible currencies unconstrained in any states of the world. The bank transacted business both in the OECD and CMEA countries approximately to the same extent. Its business profile consisted of export financing, leasing activity and the promotion of joint ventures with foreign capital in Hungary Credits Austria provided loans to Hungary not only for investment purposes but she became an important financial resource in periods of increasing liquidity problems. Hungary started to take loans when the rates of interests were low and supply was enormous on the international financial markets during the second half of the seventies. As a consequence she accumulated huge debts and fell into a grave liquidity crisis in when the rates of interests became high and credit sources 49 Vajna, pp Vajna, p Stanskowsky, p. 66. Heinrich, p. 32. Népszabadság, (official newspaper of the Hungarian Socialist Workers Party), Vajna, pp

14 dried up because of the insolvency of Poland, Rumania and Yugoslavia. To make matter worse short term foreign deposits of one billion USD were withdrawn from the National Bank of Hungary at the same time. Hungary could avoid insolvency only with international help. The Bank for International Settlements and West European central banks granted loans. In 1982 Hungary joined the IMF and World Bank that also provided help. The National Bank of Austria played an important role in the rescue operation. Austrian commercial banks had also a significant part in financing Hungarian economy. The share of Austrian banks in the total Hungarian indebtedness to the West was about 10 per cent in the seventies that corresponded to Austria s market share in Hungarian foreign trade with the West more or less. In the eighties however the role of Austrian banks increased vehemently, their participation rose to 17 per cent (table 5). 52 Conclusion Iron curtain and East-West opposition threw back Austro-Hungarian contacts fundamentally. During the first years of cold war bilateral relations hardly existed. Following the reconstruction of the political relations economic contacts started to develop but they did never reach the level of the interwar years or the intensity before World War I. Austria ceased to be the most important economic partner for Hungary. The first country built close contacts to Germany and the EEC region, the second one to the Soviet Union and the other CMEA members. East-West confrontation caused most damage to countries situating on both sides of the iron curtain that had cut off former narrow economic ties. Due to basic differences in the economic system of both states the two economies could hardly complete each other it was difficult to find adequate forms of co-operation. Instead of developed forms of division of labour foreign trade was reduced to a primitive level, it consisted mainly of a simple barter trade or the exchange of raw materials and semi-finished products. Other forms of economic co-operations were also insignificant and unsuccessful. Although Hungary wanted to modernize its economic structure with the help of foreign loans and direct investments these hopes turned to be unrealisable. The government stimulated foreign direct investment in order to get up to date technology withouth enlarging otherwise huge foreign indebtedness. Nevertheless these efforts were unsuccessful foreign capital did not become considerable in Hungary. The majority of joint ventures were of smaller or medium size and provided only smaller amount of capital. Only 52 Stankovsky, pp , Timár, Mátyás, Szürke pénzügyek (Grey finances), Magvet Kiadó, Budapest, pp

15 very few of these companies had an industrial character, they were mostly in the tourism and other branches of services. 15

16 Appendix: Table 1. The foreign trade of Hungary with Austria, Imports* Exports* Balance ,3 197,9-12, , , ,8 462,6-144, ,4 843,8-302, ,1 1225,7-1075, , ,8-3925, , , * : million exchange forint : million forint Source: Statisztikai Évkönyvek (Statistical Yearbooks) 16

17 Table 2: Share of Austria in Hungarian Foreign Trade, , per cent In Hungarian imports in Hungarian exports * 72,5 86, * 73,7 79, * 76,5 77, * 76,8 73, ,6 50, , , /47 5,01 3, ,98 6, ,67 5, ,54 3, ,4 2, ,9 3, ,74 2, ,39 4, ,42 5, ,6 6,5 * Western part of the Austro Hungarian Monarchy Source: Katus László, Magyarország gazdasági fejl dése ( ) (The economic development of Hungary, ). In: Hanák Péter (ed.). Magyarország története, (The history of Hungary, ), Akadémiai Kiadó, Budapest, p Magyar Statisztikai Szemle pp Pet Iván Szakács Sándor, A hazai gazdaság négy évtizedének története, (Four decades of the domestic economy, ), KJK Budapest, p. 93. Külkereskedelemi Statisztikai Évkönyv, (Statistical Yearbooks of the Foreign Trade) 1975,

18 Table 3: The structure of Hungarian foreign trade with Austria, according to commodity groups, , per cent Imports Fuels 0 12,8 0 Raw materials, semi-finished products 79,6 65,5 65,9 Machines, means of transport 7,1 8,8 18 Consumers goods 4,5 11,4 12 Foods, agricultural produce animals 8,8 1,5 4,1 Total Exports Fuels 8,5 26,2 16,5 Raw materials, semi-finished products 45,5 46,4 51,8 Machines, means of transport 1,8 2 6,9 Consumers goods 8,8 9,9 8 Foods, agricultural produce animals 35,4 15,5 16,8 Total Source: Külkereskedelmi Statisztikai Évkönyvek (Statistical Yearbooks of the Foreign Trade) 18

19 Table 4. Hungarian terms of foreign trade, =100 Socialist countries Other countries Total ,4 97,1 96, ,5 85,4 89, ,6 81,2 83, ,2 86,6 84, ,2 84, ,2 85,6 81, ,4 85,1 80, ,2 85,2 80, ,8 86,4 79, ,9 86,8 77, ,9 84,9 75, ,9 84,2 74, ,9 84,5 73, ,6 78, ,5 78,5 71, ,9 79,1 73,5 Source: Külkereskedelmi Statisztikai Évkönyv, (Statistical Yearbook of the Foreign Trade, 1989.) KSH, Budapest, Table 5. Gross indebtedness of Hungary with Western and Austrian banks, at the end of the year, million USD. Western countries Austria Share of Austrian banks, per cent , , , , , , , , , ,3 Source: Jan Stanskowsky, Wirtschaftsbeziehungen zwischen Österreich und Ungarn. In: Mlynar, p

20 Graph 1. Indebtedness of Hungary with the West, , million USD Gross indebtedness Net indebtedness Debt Service Source: Baárné Nyitrai Ilona, Garbainé, dr. Kovács Katalin, Láng György, dr. Nyers Rezs, Bíróné Szeg Márta, Küls eladósodás és adósságkezelés Magyarországon. MNB helytanulmányok 2. (Foreign indebtedness and debt managing in Hungary, Papers of the National Bank of Hungary Nb. 2.) MNB